Stoneridge v. Scientific Atlanta: The House of Representatives Weighs In

We have noted the efforts of the "Shadow" SEC to file an amicus brief in Stoneridge, an effort that came after the Solicitor General's Office declined to file a brief on behalf of the SEC.

On Monday, members of Congress decided to weigh in. John Conyers, the Chairman of the House Committee on the Judiciary, and Barney Frank, the Chairman of the House Committee on Financial Services, filed a motion for leave to file a brief as Amici Curiae after the filing deadline in order to support investors.  The brief is posted on the DU Corporate Governance web site.  The reason for the late filing?

• "Amici apologize for the late brief. Amici had expected the Solicitor General to accept the recommendation of the Securities and Exchange Commission that the United States file an amicus brief in support of Petitioner to urge the Court to follow the Commission’s long-standing interpretation of the statutory and regulatory provisions at issue in this case. The Solicitor General’s decision to follow the political and policy directives of the President rather than to support the Commission’s legal position, coupled with testimony by Commission Chairman Cox at a June 26, 2007 oversight hearing before the Committee on Financial Services, has persuaded amici of the critical need to give voice to the points made in their brief."

The position taken by the two congressmen did not repeat the arguments of prior amici. They took the opportunity to criticize the Solicitor General's basis for not filing an amicus on behalf of the SEC and to put before the Court the opinion of the SEC, taken primarily from testimony by Chairman Cox before the House Financial Services Committee in June. According to the Motion:

• "Chairman Cox noted that the Stoneridge case was on all fours with the 2004 Homestore case, in which the Commission voted unanimously to file an amicus brief. He made the astute point that '[l]aw has to have some objective meaning. It can’t be just a question of how we all feel about it' and that laws should not be so “effervescent as to change with” the change in political composition of the Commission."

Moreover, in rejecting the decision to file the brief on behalf of the Commission, the Solicitor General "appears to have been done as a result of White House intervention."  In other words, the decision was entirely political, something the Amici viewed as a "dangerous course."  Moreover, they expressed concern that the case would be decided on policy grounds rather than the language of the statute, characterizing this a form of "policy-based judicial activism."   

• "The Solicitor General’s decision to follow the political and policy directives of the President rather than to support the Commission’s legal position plots a dangerous course that has persuaded amici of the critical need to bring these developments to the Court’s attention.  A number of commentators have called for the Court to decide this case by reference to policy considerations nowhere found in the statute. No doubt Respondents and many of their supporting amici will ask the Court to substitute one policy argument or another in lieu of the clear statutory text, much as several lower courts have done in rejecting scheme liability.  That will be an invitation to engage in precisely the sort of policy-based judicial activism this Court has repeatedly condemned in statutory interpretation cases." (citations omitted). 

Instead, the matter was more appropriately decided by the legislature.  The two Congressmen offered their good offices to consider the issue.

• "The Committee on Financial Services of the U.S. House of Representatives stands ready to facilitate through hearings a discussion of whether to amend Section 10(b) to immunize from liability persons who knowingly engage, directly or indirectly, through conduct or speech, in manipulative or deceptive acts as a part of a scheme to defraud investors. Unless and until Congress so amends Section 10(b), however, the Court should honor the legislative policies established by the Congress reflected in the clear language of the statute, and as reflected in the Commission’s rules, as well as this Court’s precedents."

The argument is useful and clever, particularly the portion that points out the potential for "judicial activism," a phrase usually reserved for courts considered to have a liberal bent.  Whether the Justices care about the issue, they have been confronted with it, whether or not they grant the motion and permit the filing of a brief out of time.  They know the label that will be attached to any opinion based primarily on policy grounds (limiting the reach of Rule 10b-5) and not on the language of the statute/rule.